21 Oct 2009

Sample Essay: Sector Matrix Vs. Product/Commodity Chains


The rapid expansion of international trade from mid twentieth century has fundamentally brought on board the advantages of inter-business relationships when predicting the regional outcomes of market activities, this involvement has become somewhat huge. The need for reliance among organizations during various industrial processes such as manufacturing and distribution has led to the emergence of a comprehensive and concrete structure that defines their interrelations, though not definite in any sense, it almost resembles the structures governing the corporate themselves. Recently, much attention has been directed towards the study of such structures and how effective they are in understanding of product markets concept.  For instance, China is by far the largest manufacturing and consuming economy of both local and foreign commodities, consequently the Chinese government has given special importance on strategic instruments as a way of reducing environmental impacts of both the local and global economic activity. The commodity chains analysis has helped countries like China in creating a system of activities that are structured to study and analyze the environmental impacts and the importance of sharing responsibilities with other trading partners in the event of commodity marketing. (Gereffi,G. 1994).

This paper seeks to analyze the methodologies applied in an attempt to understand product markets, the challenges of the methods applied and the reason why sector matrix is increasingly providing an alternative to the study of related projects. The sector matrix provides a wide variety of economic analysis that is relatively easy to examine because it is able to compare national sources and provides huge data that can be compared against one another. Sector matrix also provides the single most comprehensive source data available. In view of this it is imperative to analyze the fundamentals of products markets and the reason for its diminishing preference.

Commodity Chain Analysis

The rationale behind commodity chain analysis is to determine the social and environmental impacts of production and supply chain activities of various commodities with the aim of facilitating and establishing a long term management of commodity chains not only locally but also globally. The commodity chain concept uses the approach of sustainability impacts which provides an approach that is fundamental in its own unique sense.

In the global arena, Global commodity chain analysis is based on the impacts of politics on the economy and how political affiliations determine and direct market outcomes. The study of commodity chains tends to study and explain how production is organized, and how trade and consumption has been globalized in the world economy. Viewing the product chain in this approach makes it rather easy because it is seen as a combination of processes whose main goal is arriving at the finished product.  The concept directs its attention towards the socio-economic relations between nations, which rely on the characterization of commodity chain as being either producer oriented or buyer oriented. It mostly includes the analysis of four basic elements of the chain which include the input-output structure which follows commodities as they move along the chain until they become finished products, the specific geographical locations where the various processes occur, the political and social relations that govern the operation of supply along the chain, and the various institutions outside the commodity chain that exerts influence on the action taken along the supply chain for instance government policy. Gereffi,G. 1994).

The structure of commodity chains analysis gives a lot of information concerning the global structure of production and the global economy. As a result it represents a fairly credible source for the stakeholders involved in production and distribution of commodities both locally and globally. The processes involved in commodity marketing are very complex and involves factors like the origin of the commodity consumed by the market, the various stages involved in the refining of raw materials and the final destination of the commodities. As Jean- Paul Rodrigue(2009) puts it, the commodity chain analysis includes a sequence of processes ranging from extraction of raw materials, the assembly of intermediate products to the distribution to the final consumer market. ( Jean-Paul, Commodity Chain Analysis. 2009).

Jean-Paul divides the complex processes involved in several perspectives, looking at this helps in understanding where the weaknesses of commodity chain emanates from. The levels include:

Transactional perspective: this area looks into how the management of commodity chains and it involves the processes of decision making and the management of transactions.

Comparative perspective: analyses the quality of the elements of commodity chains and how value that is added at each stage determines the competitiveness of the commodity.

Functional perspective: looks into the physical processes that commodities undergo during their distribution which includes capacity constrains in distribution which include: modal, intermodal and terminal effectiveness.

Looking at Jean-Paul’s analysis reveals that this type of analysis is only able to view at the distribution of commodities from a single perspective at a time. For instance the above analysis only centers on transportation and cannot divert and look into other areas such as political interrelations between nations, geographical or environmental factors. Commodity chain does not provide for a way to interlink the above aspects at a given time.

Limitations of commodity chain analysis become more apparent at the global level where the processes become more complex. The GCCA (Global Commodity Chain Analysis) has always been specifically directed towards providing a critical assessment in commodity chain and has therefore provided comfort. However, the fundamental requirement of a clear and comprehensive quantitative data on the trade flows and the environmental impacts of specific practices along the supply chain, creates limitations for the GCCA because it is a major pre-requisite for issues like effective environmental management. (Von Moltke, Konrad and Onno Kuik 1998).

The GCCA’s concentration on the social and economic relationships along supply chains provides a critical basis for the development of strategic market-based and regulatory policy by allowing targeted application of policy to the commodity chain context. The most important challenge facing thorough appliance of GCCA is that many of its most important concepts, such as the role of politics in product marketing cannot be effectively quantified. As a result most assessments tend to be qualitative, making consistency and comparability difficult to ensure.

The Ecological Footprint which was developed in Canada by Mathis Wackernagel and Willam Rees during the 1990s also provides a methodology for determining the environmental impact of economic activity as a function of geographic area. The basis of the footprint approach is established on the idea that it is able to provide a comparison between the resource demand of a particular area or population with the corresponding resource availability. In essence, the footprint involves translating of resource utilization into a quantitative estimate of the land area required to supply such resources.

The automobile industry provides a good example of a producer-driven chain, with several production systems that entail thousands of firms including parents, subsidiaries, and subcontractors.   All of these systems are too complex to be sufficiently analyzed using commodity chains. In an example provided by Gerrefi( 1999), the Japanese automobile industry had an average of 170 first-tier, 4,700 second tier and 31,600 third tier in the 1980s (Hill 1989). Florida and Kennedy (1991) established that this Japanese auto industry reorganized many of their country’s supply networks in North America. Furthermore, Doner (1991) went on to explain that this reorganization was extended to nations in the East and South East Asia. In view of the producer driven commodity chains have been to some extent successful in establishing a division of labor in East Asia through its study of internationalization of the US.

The Sector Matrix Analysis

Every scientific system of analysis usually has limits. The commodity chain system of analysis is not out rightly wrong, but the limitations it offers have given way to the sector matrix analysis. For instance chain analysis only works well for simple consumable goods like foodstuffs which require complex structures during their distribution, but need no additional infrastructure or services once they have been distributed. However, for complex products like pharmaceuticals which require complex infrastructures in form of healthcare and vehicles which require motoring and consumes a large proportion of domestic expenditure, the use of commodity chain analysis is rather myopic. This argument does not confine the applications of sector matrix to a few complex commodities, because its applications has widened due to the accompaniment of many commodities nowadays with services.

In their Book, “Breaking the Chains? A sector Matrix for motoring, Julie, F., Colin, H., Sukhadev, J. and Karel,W. provide an alternative to commodity chains in form of sector matrix by looking at the limitations of commodity chains in the motor industry. They argue that Gerrefi’s( 1996) views supply in simplified linear terms while assuming that demand is the reverse relations with product distribution chain. This alternative method is viewed in terms of activities such as motoring or healthcare where products such as cars and ethical drugs are consumed together with a lot of other services depending on consumer preferences and require a variety of other infrastructure. Julie, F et al base their general argument on a demonstration of the advantages of the Sector Matrix analysis of the motoring industry and the commodity chain consideration of the same industry as a car industry. They first argue that that the word industry has been previously used out of context by looking at it from commodity chain point of view. They provide an example for instance, where it is difficult to categorize a company that manufactures rear window for cars as being a separate industry altogether or a sub-industry within the motor industry. The Sector matrix provides a definition which effectively accommodates the two; an industry is a group of products associated by a common technology or supply or distribution channels.(Julie, F.  et al 1998)

Looking at China which is home to the third most huge connector region globally where the total connector sales totaled about $7.022 billion in connector sales in the financial year of 2007 it is easy to reveal the complexity of market processes and as a result the limitations of commodity chain in such a huge market. The manufacturers involved in the Chinese connection market are about 60 with 40 of them being major manufacturers. The processes involved these kinds of market are not only complex but also huge. Therefore viewing them in a linear fashion will not only take a lot of time but would create room for numerous errors. (Electronicas.Ca. Conducting a Market analysis).

The sector matrix analysis is governed by demand from firms and household outside the sectors which enables an organization to gather enough profits to be able to sustain its employees and allow for cost recovery. These surpluses can then be injected to other sectors of firms which operate at both the national and international level. Following the logic concept of viewing at only the commodities, not only at the substitutable finished products but also the complementary products that go along with the finished products which form part of what is required by the consumers will direct the view to a much broader sense of commodities and services. The result would not be commodity chain but a vertical and horizontal matrix. In the motor industry, this fact will shift the concentration to viewing the marketing of vehicles in terms of motoring. The relations on the side of the consumer will depend on the patterns of income as well as the subsequent distribution of demand.

In the motor industry supply interactions arises from the re introduction of nearly new second hand cars which are being sold at a discount with a first owner who will hold for less than two or three years which is normally the period for private owners, this scenario clearly presents itself in the UK motor industry. Traditionally, car firms sold cars at a discount to their own workforce and passed demonstration models to dealers. New cars are alike in the sense that expenses never end on purchase but goes on in form of expenses. (Julie, F.  et al 1998)


The sector analysis provides an efficient and complex analysis of commodities which is able to put together both complementary and competing goods and services. The sector matrix rather than providing an alternative to the commodity chain analysis provides for methodologies that complement the limitations of commodity chain analysis.


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